Saudis aim to slash unemployment with $385 bln plan

Saudi Arabia hopes to nearly halve unemployment by the end of 2014 by spending $385 billion on schools, hospitals and other infrastructure projects.

Ageing King Abdullah is under pressure to create jobs and build housing as the population grows and unemployment rises in the biggest Arab economy and the world’s top oil exporter.

Two-thirds of Saudi nationals are under 30-year and the kingdom has struggled to create jobs for them, partly because of a state education system focused more on religion than job skills and partly because local firms often decide to hire non-Saudis at lower wages.

Offering young Saudis a bright future is important because without jobs they could be drawn to Islamist militancy. It was mainly Saudis who were behind the Sept. 11 attacks on U.S. cities and some young Saudis joined militant groups in Iraq.

The new 2010-2014 development plan, approved by the cabinet on Monday, aims at cutting unemployment among Saudis to 5.5 percent, from 9.6 percent at the end of 2009. In June, the Labour Ministry put the 2009 jobless rate at 10.5 percent.

A previous plan hoped to reduce it to 2.8 percent by the end of 2009, from 7 percent in 2004.

“This plan is outlining the priorities the government is setting based on the revenues they are expecting to have … It is not an additional $400 billion, but a continuation of the spending,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh.

A Finance Ministry official said the new plan would be funded from the government’s budgets for the period.

The monarchy needs to invest in education as the country seeks to diversify the oil-based economy. Just over half the spending is devoted to manpower, education and training.

That includes plans to build technology colleges and vocational schools while 19 percent of the funds will be devoted to the health care sector and 7 percent to housing.

Saudi Arabia suffers from an acute housing shortage due mainly to a lack of a mortgage financing law and the lack of affordable land, which is pushing inflation up.

The new plan said private and public sectors would build 1 million housing units but did not give a breakdown or a detailed timeframe for their completion.

AMBITIOUS GOALS

Diversification of the economy, among other goals, was one of the priorities that the previous government spending plans looked at but has not achieved, economists said.

“There are many goals in the previous plans, most of which were not achieved, such as diversification of resources,” said Abdulhamid al-Amry, member of the Saudi Economic Association.

“Since 1970 until the end of 2009 the contribution of the non-oil sector to the GDP did not exceed 11.5 percent and curbing of unemployment which was a priority in the previous plan increased instead of decreasing,” he said.

The new plan expects the gross domestic product per capita to rise to 53,200 riyals ($14,190) by 2014, from 46,200 riyals at the end of 2009. The 2009 figure is lower than the previously planned 48,200 riyals.

During the global financial crisis, Saudi Arabia announced a 5-year $400 billion stimulus plan, the largest relative to GDP among the world’s 20 leading nations.

Annual inflation soared to a record high of 11.1 percent hit in July 2008 below falling back to a two-and-a-half year low of 3.5 percent last October. It has risen since, hitting a 13-month peak of 5.5 percent in June.

Finance Minister Ibrahim Alassaf, whose ministry wields control over the country’s budget, told Reuters in an interview in late May that the kingdom would stick to its 2010 national budget, which was set at 540 billion riyals.

(Additional reporting by Souhail Karam in Riyadh and Martina Fuchs in Dubai)